Economic weakness abounds! The country is in
recession and exports are “stalled” according to the
Bank of Canada. But if you dig into the numbers,
something bigger is happening.

The first five months of export data show a huge 31%
decline in oil, with natural gas falling 40%, a
devastating hit to Canadian exports. The big question
is whether the positive effects of a weaker dollar and a
stronger U.S. economy can make enough of a
difference. Skeptics remain doubtful about whether
our exporters have enough capacity for a big increase
in production: there are no state-of-the-art Canadian
factories waiting for the lights to be turned on.

One of the most optimistic forecasts for 2015 came
from our friends at Export Development Canada. Their
forecast for 2015 export growth was... zero. A big goose
egg.

Actually, this was a cheery forecast because they were
essentially saying that Canada’s non-energy exports,
such as manufactured goods, technology, services and
agriculture, would be strong enough to offset the huge,
gaping hole from the decline in energy sales.

So far, it looks like EDC is right. Canada’s export
manufacturers have ramped up production and are in
overdrive. The strongest contributor to growth is the
automotive sector, rising 9% this year thanks to a
resurgent U.S. economy. American auto sales hit 17.4
million vehicles, record levels not seen in 15 years, as
our members in the auto sector are struggling to keep
up with demand.

And it’s not just autos; exports of machinery and
equipment are up 9%, electronic equipment up 15%,
aircraft up a staggering 33%. Services will gain 5% this
year thanks to a new rising star: tourism. So, does this
make up for the huge decline in energy?

Not quite. So far in 2015, exports are down 1.3%. But if
we see greater strength in the second half, as we expect
from a U.S. economy that is firing on all cylinders, then
Canada’s exports might even get to modest growth.

This means we are in the midst of a very strange
recession. Ontario, Québec, B.C. and Manitoba are all
set to grow at a healthy 2% range, with solid export
growth across-the-board. Only Alberta and
Newfoundland will see GDP contracting this year by
around 1% and exports tumbling by 15% or more.
Canada overall will see GDP rise by just 1% in 2015.

The big challenge is that growth will get harder from
here. With a soft domestic economy, we’re increasingly
dependent on exports. Thanks to weak commodity
prices, further export gains can only come from rising
productivity, world-leading technology and
innovation. We need a comprehensive plan to improve
competitiveness so that Canadian companies can win.

Dark storms are gathering over the global economy.
Greece is once again at the precipice, insolvent and in
need of another €85 billion to stave off collapse and
recapitalize its shattered banks. At the same time,
China’s stock market is in a 1929-style meltdown.
Either one of these events would be a big shock to the
global economy, but to have both at the same time is
an economic earthquake.

Poor Stephen Harper. He would dearly love to be
talking about how Canada had the strongest growth in
the G-7, which it did up until 2012, and to tout his
government’s sound management. But the economy
isn’t cooperating and, worse, it’s being hammered by
international forces that are beyond our control.

Let’s start with Greece, a country that is insolvent with
26% unemployment, collapsing banks and a debt-toGDP
ratio of 180%. This is now its third bailout as it
already received some €240 billion in support. The
problem is the bailouts came with tough conditions:
brutal spending cuts and tax increases that pushed the
Greek economy from a recession into a downward
spiral. The country’s GDP has contracted by 27% since
the start of the crisis, more than the U.S. during the
Great Depression.

That’s why many believe Greece would be better off if
it exited the euro. The government could print
drachmas, the former Greek currency, to spend on
public works. This currency would plummet in value
making Greece competitive in exports and a dream for
tourists. But the country would default on its debts,
and the financial system would collapse.

The point is either Europe spends limitless sums
backing insolvent banks and a bankrupt government
in exchange for half-hearted austerity that probably
won’t work. Or Greece exits the euro. Both scenarios
are bad news for European growth prospects.

The other economic superpower is China, where
shares have plummeted more than 30% since June. A
staggering US$340 billion has been lent out by brokers
for stock purchases, and the downturn is forcing
shareholders to sell in order to cover losses. Share
prices would be down even further except the
government halted trading in 1,300 companies and
directed state-owned financial institutions to buy
shares. This is likely to have ripple effects, hurting
confidence and further slowing China’s economy.

What does it all mean for Canada? The outlook for
commodities depends very much on global demand.
Collectively, the European Union is the world’s largest
economy. The world’s largest consumer of
commodities is China. Both are showing signs of
weakness, which is why commodities are in retreat
and oil prices have dropped back to $52 a barrel.

Canada’s GDP has fallen four months in a row and its
exports will decline again in the second quarter. On
September 1, Statistics Canada will release the latest
quarterly GDP number, which is likely to be negative,
meaning Canada will officially be in a recession.

For the federal political parties, this is earth-shaking
because it makes the status quo much less acceptable.
More importantly, leaders will have to explain what
they will do about Canada’s weak economy. Stimulus
spending is helpful but short-lived. A much better
option would be to make the Canadian economy more
competitive so that business can win more sales and
create more jobs. The Canadian Chamber of Commerce
has a plan to turn Canada into an export and
innovation powerhouse. It’s available here.

This week, we're going to channel Hendrik Brakel’s research on the Canadian “tourism economy” in the first quarter of 2015. Brakel, The Canadian Chamber’s Senior Director, Economic, Financial & Tax Policy, has turned his sharp eye on Canada’s second largest export industry: tourism. His insights are worth noting. What could be more appropriate than talking tourism in the midst of our glorious Okanagan summer?

With a weak national domestic economy, Canadian business increasingly needs to look for opportunities in international markets. Canada’s overall economy shrank by 0.6 per cent in the first quarter. Consumers stopped spending, business investment went into retreat and inventories began piling up. Not totally the case in BC, however, we benefit when Canada grows.

Wouldn’t it be great if we could get foreigners to come spend money here in Canada? That’s why tourism is one of the top priorities of the Canadian Chamber of Commerce. We need it now more than ever. The Governor of the Bank of Canada warned that Canada’s first quarter would be “atrocious” and he was right. Consumers have put their credit cards away and spending barely grew, at just 0.1 per cent. More importantly, the hit from falling oil was severe as business investment fell by 2.5 per cent and support activities for the extraction sector plummeted by 30 per cent.

So, is anyone spending? Yes: first quarter 2015 visits from China to Canada were up 24 per cent, and from Mexico, 38 per cent. Wow. US visits to Canada also rose by 6 per cent. Canada’s tourism industry is larger than agriculture or the auto sector, supporting 170,000 small- and medium-sized businesses across the country. Overnight arrivals to Canada hit 2.32 million in 1Q 2015, a 6.8 per cent increase compared to the same period last year.

Closer to home, Tourism Kelowna’s most recent numbers for 2014 (estimated) tell us that the Kelowna CMA (census metropolitan area) room revenue is $80.6 million, an 8 per cent increase over 2013. Roomrevenue in Kelowna has grown every year for three years. Brakel points out that Canada’s tourismcontribution of $88 billion generates 627,000 jobs.
It’s not all wine and Okanagan sunflowers, however; Canada has fallen from #5 (international destinations) to #16 in the last ten years. This is where I explain my toothpaste analogy. Proctor and Gamble spends $275 million on the Crest brand alone every year in the US. What does Canada spend on promoting the Canada brand in the US? Well, less. Much less. Zero, in fact.

Overall the Canadian Tourism Commission’s budget is half what it was in 2009. CTC doesn’t even market in the US, although a new infusion of $10 million was earmarked in May of this year for US marketing.
That’s $265 million less than Crest toothpaste. Even the Canadian government spends about $90 million annually to market its own programs to Canada.

Marketing works. When Canada marketed itself last year in other countries, tourism revenue grew anaverage of 13.7 per cent from those countries. That’s triple the growth from countries where Canada doesn’t market.

So what is going on in the Central Okanagan? Is anyone marketing us? The answer is yes. Nancy Cameron, the CEO of Tourism Kelowna tells us their mission is to generate increased overnight visitordemand to create economic benefit for Kelowna and neighbouring communities.

So, is Tourism Kelowna spending? Yes. Wisely and well, it turns out. TK’s annual revenue last year was $2.7 million, primarily from hotel tax. Provincial and federal funding makes up a small 2 per cent of Tourism Kelowna’s budget. So how do they stretch it?

TK has been utilizing a content strategy and digital online ads “Get Outside and Do Some Stuff” in a surprisingly wide range of media: HGTV, epicurious, The Seattle Times, Tripadvisor, the Food Network, and more. Kelowna golf experiences also are featured in Tourism Kelowna’s TV ads on the most-watched sports and news networks. They’re modern, edgy, bright and short. Combined with social media marketing and the garnering of hundreds of travel articles, TK’s total “exposure value” for 2014 – which is a combination of paid advertising, leveraged value and editorial value – totalled a whopping $3.48 million. All this on a paid investment of only $867,800.

An Australian tourism report showed that each $1 of additional marketing was returning $16 ofrevenues from tourists, an extraordinary ROI. And, the US tourism industry is currently booming. April in the US saw the highest occupancy ever – 67 per cent – and the highest room demand (99.4 million) ever. US hotels are struggling to keep up with demand. With Canada’s cheap loonie and our soft economy, this is a great time to let the Americans know that we’re open for business. That’s why the Canadian Chamber is calling for a much larger investment, of around $120 million annually, to market Canada internationally. The CCC ran a “Stand up for Tourism” campaign for a week in May/June – a campaign we are all proud of, and know will help raise the issue of how important tourism spending and income is to all of us.

With thanks to Nancy Cameron and Hendrik Brakel, we’ll sign off now. Off to book a golf game, rather than shopping for toothpaste this afternoon.

Jobs are always a top issue in a federal election, but
with this shaky economy, it’s fast becoming the
number one priority. Opposition parties have made
much of the recent bad news: in the first quarter,
Canada’s GDP shrank by 0.6%, exports tumbled 5.6%
and corporate profits fell by 14% as the drop in oil
prices slammed the Canadian economy.

And yet the Canadian labour market has held up well,
adding an average of 20,000 jobs per month since the
beginning of 2015. In fact, Canada added a rip-roaring
59,000 jobs in May. What gives? Where are these jobs
coming from in the midst of economic despair?

Our regional differences are as stark as ever. Energyrich
provinces once drove job creation while the
manufacturing sector of Central Canada lagged
behind. Now lower oil prices and a weaker Loonie
have flipped the numbers. Still, the outlook is very
mixed.

There are now 25,000 fewer jobs in the Alberta oil
patch, but there is good reason to believe that the
worst is behind us. Firstly, oil prices have stabilized
around the $60 range and are headed slightly higher.
The market no longer fears a drop to $20 as Citibank
had predicted. Secondly, oil sands projects require
huge upfront investments, but once those are made,
they can go on producing for years with relatively low
costs. And they need to keep operating continuously:
most can’t be shut down without damaging the
equipment. Thirdly, new investments are on-track
with 10 new oil sands projects scheduled to start this
year and 7 set for 2016 with total capacity over 300,000
barrels per day, according to Oil Sands Review. These
are probably safe because once they’re partially paid
for, “you don’t stop a project mid-cap-ex”. Some
exploration and drilling activity has been scaled back,
but job losses should ease.

In manufacturing, the outlook is much improved and
the parties have all pledged support for the sector,
which is certainly welcome. The challenge is that
manufacturers are increasing production by investing
in capital and new technologies: they’re becoming
more efficient and more competitive. As a result, we’ll
see an impressive resurgence in manufacturing and
exports, but it may not translate into big job gains.

The political parties are missing the big picture by
focusing so much on jobs in manufacturing and
natural resources because together they account for
just 11% of the labour force. The overwhelming
majority (78%) of Canadian employment is in the
service sector and recently it’s been the fastest growing
part of our economy.

Services are a poorly understood grab bag of different
occupations. It’s sometimes perceived as low-paying
because it includes retail and restaurants, but there are
also scientists, engineers, lawyers and financiers.

Over the past year, Canada’s fastest job growth is in
sectors like business and support services (up 4.5%
compared to last year), education (up 4.1%), finance
and insurance (up 3.5%) and professional, scientific
and technical (up 1.7%), while retail has barely budged
(0.3%). And the gains in high-end services
employment are spread right across the country.

With the election just around the corner, we would
love to hear a politician say: “we need highly
specialized skills to compete and succeed in the service
economy. That’s why we must invest in Canadian
education and training to make it the best in the
world.”